RickNRoll
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How Does Lion Air Afford All Those New Planes?

Wed Feb 22, 2012 10:06 pm

"How do you stump up the money for a $US22 billion aircraft deal?
The answer in the case of Indonesia's Lion Air, which finalised a record order with Boeing last week, is typical of many mega-aircraft deals: with a little help from the taxpayer."


Read more: http://www.theage.com.au/travel/trav...-20120222-1tnbg.html#ixzz1n9O26yJG

The US Government is using the American taxpayer to provide the necessary guarantees.
 
rjm777ual
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RE: How Does Lion Air Afford All Those New Planes?

Wed Feb 22, 2012 11:04 pm

Actually, i have no idea how they have the ability to order 270 737's and still pay it off.
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RickNRoll
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RE: How Does Lion Air Afford All Those New Planes?

Wed Feb 22, 2012 11:26 pm

The thing is, Lion doesn't have to worry about being able to pay it off.
 
roseflyer
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RE: How Does Lion Air Afford All Those New Planes?

Wed Feb 22, 2012 11:43 pm

Quoting RickNRoll (Thread starter):

The US Government is using the American taxpayer to provide the necessary guarantees.

The export-import bank does use the large financial capacity of the treasury to support its loans. The treasury has more capital than private firms and can back bigger loans.

However it doesn't use taxpayer money. The export-import bank earns a profit. It's earned about $5 Billion over the last 10 years that went straight to the US treasury. By essentially being the largest bank in the world, it can make large loans that private sector companies can't take the risk on at reasonable rates.

Whether or not the export-import bank is fair is a different question. US companies complain that it is unfair and props up foreign airlines by giving them access to lower finance rates. Foreign companies say it gives US companies an unfair advantage. That's a WTO ruling. Saying that it uses taxpayer funds to support a deal to Lion Air is not correct. The export-import bank just assumes risk for a loan that is made in the private sector using private sector funds (for the most part). It earns a fee for doing this. It's common in the finance industry to sell the risk of a loan. It gets down to the whole concept of insurance.

The largest airline leasing companies are backed by huge capital sources. ILFC is backed by AIG and GECAS is by GE. They need large sources of money to back up the large loans. The export-import bank is an extension of the idea. Taxpayers win because of the export-import bank irregardless of jobs created to specific industries. I'm all for the treasury earning money and financing itself. It has to pay for all the treasury loans anyway that make up the deficit.

[Edited 2012-02-22 15:44:02]
If you have never designed an airplane part before, let the real designers do the work!
 
roseflyer
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RE: How Does Lion Air Afford All Those New Planes?

Wed Feb 22, 2012 11:49 pm

Quoting RickNRoll (Reply 2):
The thing is, Lion doesn't have to worry about being able to pay it off.

Why not? Just because the capital is coming from a government bank or being backed by a government bank does not make it any less of a loan. There are plenty of other airlines that are rapidly expanding and have far more liabilities than a typical company of their size would such as Air Asia and IndiGo. Both of them forecast growth of 500% and have liabilities reflecting that.
If you have never designed an airplane part before, let the real designers do the work!
 
RickNRoll
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RE: How Does Lion Air Afford All Those New Planes?

Thu Feb 23, 2012 12:11 am

You are right, Lion doesn't have to worry about being able to pay the loan off to get the loan. The financiers who normally would not make such a risky loan don't have to worry about Lion not being able to pay it off.
 
roseflyer
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RE: How Does Lion Air Afford All Those New Planes?

Thu Feb 23, 2012 12:43 am

Quoting RickNRoll (Reply 5):
You are right, Lion doesn't have to worry about being able to pay the loan off to get the loan. The financiers who normally would not make such a risky loan don't have to worry about Lion not being able to pay it off.

The US Import-Export bank has very tight restrictions and requirements. This is a guess, but knowing how other government financing agencies work, I'd assume the terms associated with financing are probably far more complex than conventional commercially backed loans. I don't think the statement of not having to worry about paying off the loan is applicable at all. What is applicable is that a single financier does not have to assume as much risk.
If you have never designed an airplane part before, let the real designers do the work!
 
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Stitch
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RE: How Does Lion Air Afford All Those New Planes?

Thu Feb 23, 2012 12:49 am

Quoting RickNRoll (Reply 5):
The financiers who normally would not make such a risky loan don't have to worry about Lion not being able to pay it off.

Looking at all the financial disasters that have impacted commercial banks around the world over the past few decades, I would say it is the financiers who are the ones making all the risky loans.
 
trex8
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RE: How Does Lion Air Afford All Those New Planes?

Thu Feb 23, 2012 12:57 am

ExIm don't finance people who cant pay back, they finance at a LOWER interest rate people who may have not been able to conclude the deal if they had to pay at higher prevailing commercial rates or would have given the business to a foreign supplier who had a better financial package.
Even several basis points on a billion dollar loan over a decade or two is serious money worth potentially giving the contract to a competitor for if it saves you tens of millions over the life of the loan.
 
roseflyer
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RE: How Does Lion Air Afford All Those New Planes?

Thu Feb 23, 2012 1:34 am

Quoting trex8 (Reply 8):
they finance at a LOWER interest rate people who may have not been able to conclude the deal if they had to pay at higher prevailing commercial rates or would have given the business to a foreign supplier who had a better financial package.

Exactly. By providing insurance on the loan at a relatively low price, it allows the rate to be lower than the rate the market would charge because loans supported by the export import bank tend to be very large.
If you have never designed an airplane part before, let the real designers do the work!

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